INDAG RUBBER LTD. v. RAJASTHAN STATE ROAD TRANSPORT CORPORATION
2000-12-22
ARUN MADAN
body2000
DigiLaw.ai
JUDGMENT ARUN MADAN, J. - This Civil misc. appeal having been filed under Section 39 of the Arbitration Act, 1940, (for short 'the Act') by Indag Rubber Ltd. (for brevity 'the Company') (appellant) is directed against the order dated 22.11.1999 passed by the District Judge Jaipur City in CMA (Arb.) No. 256/97, whereby he confirmed the award dated 4.4.1997 passed by the arbitrator and issued the decree in terms of the Award in favour of the Rajasthan State Road Transport Corporation (for short Corporation) (respondent claimant). Undisputed facts giving rise to this appeal are that an agreement was executed between the company (appellant herein) and the Corporation (respondent) on 24th July, 1991 for purchase of cold processing retreading plant and retreading material. According to Clause 3 of the agreement, in the cold processing plant of Indag Tyre process, no other retreading material except of Indag would be used during subsistence of the contract provided M/s. Indag supplies retreading material regularly and uninterruptedly as per need of the Corporation. Clause 4 stipulated that the Corporation should purchase retreading material from M/s. Indag at the prevailing rates against the rate contract of the Association of State Road Transport Undertakings (for short 'ASRTU'). Clause 5 which is most crucial in this context deals with "warranty for retreated Tyres", according to which M/s. Indag was required guarantee performance of 46,000 kms average life or 95% of new tyres in each division in similar condition whichever is less and the performance would be assessed initially after 12 months on the commissioning of plant and production of tyres and subsequently on quarterly basis, and on failure of guaranteed kilometres, Indag was/is bound to compensate on prorate basis. Clause 10 of the agreement pertains to arbitration and as per which in case of any dispute between the parties regarding interpretation of the terms and conditions of their fulfilment, both the parties shall refer the dispute of the Chairman, RSRTC who after hearing both the parties shall give the decision which shall be final and binding on the parties. Now I may first state in brief grievance raised by the Corporation in its claim petition and the reply filed by the Company disputing the claim resulting in arbitration proceedings out of which the present appeal has arisen. Pursuant to arbitration Clause 10 of the agreement, the Corporation (claimant respondent) presented claim for Rs.
Now I may first state in brief grievance raised by the Corporation in its claim petition and the reply filed by the Company disputing the claim resulting in arbitration proceedings out of which the present appeal has arisen. Pursuant to arbitration Clause 10 of the agreement, the Corporation (claimant respondent) presented claim for Rs. 1,23,32,121.45 p., besides interest @ 18% per annum before the sole Arbitrator (the then Principle Secretary Home and Justice Government of Rajasthan Jaipur). As regards appointment of the Arbitrator, undisputably Clause 10 of the agreement between the Company and the Corporation was modified with the consent of M/s. Indag Rubber Company to provide for appointment of the Home Secretary Government of Rajasthan Jaipur as arbitrator; and the arbitration proceedings had commenced on 3.1.1996 in the presence of both the parties inasmuch as the Company by its letter dated 6.1.1995 had consented to the arbitration being done by the Principal Secretary Home Department. The Corporation filed the claim on 7.12.1993, to which reply was filed by the Company on 23.12.1993 whereas rejoinder was also filed by the Corporation on 4.4.1994 besides supplementary claim on 31.1.1996. In the claim, the Corporation alleged inter alia (1) that when retreaded tyres were used on its buses, such tyres could not have achieved the guaranteed kilometres as per warranty Clause 5, whereupon the company was informed of such deficiency in its retreaded tyres asking it for inspection of such tyres, (2) that the Corporation had informed the company through its various letters dated 27.2.1993, 30.3.1993, 12.5.1993, 29.6.1993, 15.7.1993, 20.1.1994, and 16.7.1994 that retreaded tyres used on its buses in their eight regions were not giving the guaranteed kilometer age resulting in causing loss to the tune of Rs. 1,19,53,430.92 p. for which the company was called upon to make payment of aforesaid loss calculated on the basis of pro rata on each tyre retreaded on the plant/materials supplied by the company. Total claim amount of Rs. 1,23,32,121.45 p. did also consist of Rs. 25 lacs towards damages caused because of the retreaded tyres having failed to give guaranteed kilometer age, thereby such tyres had to be removed at a premature stage.
Total claim amount of Rs. 1,23,32,121.45 p. did also consist of Rs. 25 lacs towards damages caused because of the retreaded tyres having failed to give guaranteed kilometer age, thereby such tyres had to be removed at a premature stage. In reply the Company denied its liability to the claim amount asserting that the Corporation had wrongly construed the agreement because essential feature of warranty Clause 5 was that comparative assessment of new tyre life with retreaded tyre was to be made in each division in similar conditions. The company also asserted in its reply that as per Clause 3 complete retreading material which also included repair material was to be purchased from the company only because of the reason that after a tyre is worn out it is first repaired so as to give it basic strength before it is retreaded, thereby repairing of tyre was essential part and process of retreading but surprisingly enough the Corporation did not purchase repair material from the company resulting in breach of Clause 3 of the contract, itself. Hence according to the company, since effect of improper repair material having been used by the Corporation had material bearing on the retreaded tyre life, therefore, 25% to 30% of the tyres allegedly removed prematurely had caused damages on account of bursting or cutting of the tyres, which could not have been used or considered for assessment of a retreaded tyre's life. The Company had referred its letters dated 14.11.1991, 16.11.1991, 17.1.1992 and 7.5.1992 wherein the Corporation was informed inter alia that while assessing performance of retreaded tyres, the tyres removed from wheels prematurely due to bursts, tread separation or service abuse like one side wear or spotty wear, run flat etc., should not be taken into account, and the performance of remaining types only should be compared with new tyres; (2) that the claimant Corporation was advised to use repair material manufactured by the company for repair of tyres to be retreaded; (3) that performance of the tyres should be compared in similar conditions, and that since new tyres were fitted by the Corporation on front axle and retreaded tyres were fitted on the rear axle, therefore the performance was bound to be lower and thus assessment of performance of the retreaded tyres was not in similar conditions.
The company further asserted that the performance should be computed of new tyres of the same design as on rear axles in each division before comparison with performance of Indag retreaded tyres. The Company to substantiate their assertions also referred to letter dated 14.5.1990 of the ASRTU sent to it contending therein that performance of retreaded tyres when used on the front wheels should be compared with new tyres performance on the front wheels fitted to the vehicles operated on similar routes, so also likewise for the tyres used on rear axle. Hence the company asserted that since the Corporation used retreaded tyres in conditions not similar to one in which new tyres were used, consequently their performance was bound to vary. Much emphasis was laid by the Company while asserting that method of assessment adopted by the Corporation was not proper. The Company citing the case of Maharashtra State Road Transport Corporation asserted that in Maharashtra new tyres are fitted on the same axle of the bus as of retreaded tyres and then only performance is adjudged and compared whereupon in Maharashtra retreaded tyre's performance is found 97% of 99% life of a new tyre primarily but in the instant case such a method of assessment since having not been adopted by the corporation there has been difference in the tyre life of a new and retreaded ones. In reply, the company also asserted that as per figures shown by the Corporation retreated tyres in Ajmer Division did not show any loss of kms., which proved that if compared properly in similar conditions there was no difference in retreaded and new tyres. As regards words, in similar condition in each division, the company had asserted in its reply that in each division there cannot be a similarity of condition, e.g., in Jaipur Division, a bus may be plied on Jaipur-Delhi national highway route and could also be plied on Jaipur-Lalsot route which clearly shows that condition in each division cannot be similar and for making a proper assessment, tyres have to be assessed by considering the factors viz., 'in each division' so also 'in similar conditions' whereas in the present case whole division has been taken as one unit without insisting on similar condition as contra distinguished from the method adopted in Maharashtra.
Lastly the company asserted in reply to the claim petition that the procedure for calculating loss was incorrect, firstly because losses have been calculated on notional basis and secondly, in calculating cost of retreaded tyre, cost of labour and other overheads had also been taken. In support of its reply on 18.3.1996 company filed an affidavit of Suresh Kamat Manager Training who was cross examined by the Corporation's counsel on 24.8.1996, whereas the corporation filed an affidavit of Vikram Singh Barar working as Executive Director on 26.2.1996 who was cross examined by the Company's counsel on 23.3.1996. Various charts were prepared and produced by the Corporation besides other reports prepared of joint inspection whereas in support of its reply the company produced as many as 19 documents. The arbitrator framed following three points for determination in the dispute : (1) Whether the retreaded tyres which failed for other reasons like burst etc. should be taken into account while assessing performance of the retreaded tyres ? (2) Whether the claimant was required to use repair material supplied by Indag only ? and (3) Whether the retreaded tyres and new tyres were used in similar conditions for the purpose of assessing their comparative performance ? The arbitrator after having heard both the parties and having taken into consideration documents on record, decided all points in dispute in favour of the Corporation (claimant) and concluded that the loss suffered by the Corporation has been rightly calculated as Rs. 1,19,53,430.92 p. However, the arbitrator found no justification to the additional sum of Rs. 25 lacs claimed, as damages by the Corporation. Thus, the claim of the Corporation was partially accepted to Rs. 1,19,53,430.92 p. with interest @ 12% p.a. from the date of letters (27.2.1993, 30.3.1993, 12.5.1993, 29.6.1993, 15.7.1993, 20.1.1994 and 16.7.1994) till the date amounts are actually paid, under Award dated 4.4.1997, which was produced in Court on 24.5.1997 whereupon the District Judge issued notice to both the parties, to which the Company filed its objections under Sections 30 and 33 of the act. The Corporation replied to the Company's objection and moved an application with the prayer to make the award as rule of the Court.
The Corporation replied to the Company's objection and moved an application with the prayer to make the award as rule of the Court. The learned District Judge having considered the objections, its reply and rival contentions made by learned counsel for both the parties in its judgment dated 22.11.1999, while making the Award as rule of Court, issued a decree in terms of the Award in favour of the claimant respondent Corporation. Hence, this miscellaneous appeal. I have heard Shri Kamlakar Sharma, learned counsel for the appellant Company (Indag), Mr. Altaf Ahmed, Additional Solicitor General so also Shri Manish Bhandari, learned counsel who had filed Caveat on behalf of the respondent-Corporation (claimant). Shri K. K. Sharma has canvassed manifold grounds which I would deal with hereinafter at appropriate time while considering the validity of the impugned Award and the decree, with a view to avoid duplicity and complexion of facts for setting aside not only the impugned Award but also the decree passed by the learned District Judge by vociferously contending that both the impugned Award so also the decree are absolutely contrary to facts on record and law because they suffer from errors apparent on the face of record/award, inasmuch as the arbitrator has legally misconducted the proceedings by acting arbitrarily, irrationally, capriciously with departure from well settled principles and disregard of the contract itself.
Per contra, Shri Manish Bandari, learned counsel for the caveator/Corporation seriously objected to each of the grounds urged by Shri Sharma during the course of arguments, and vehemently contended that powers of this Court for setting aside the impugned award and the decree issued in terms thereof are very restricted inter alia : (1) because this Court can in any circumstances neither interfere with the reasons assigned by the arbitrator in his award nor re-appreciate the view taken by the arbitrator even on the ground that the Court thinks that the other view is preferable qua the view of the arbitrator; (2) because the Court cannot proceed to determine whether the conclusion is right or wrong and it is not open to the Court to attempt to probe the mental process of the arbitration; (3) because it may be possible that on the same evidence the Court might have arrived at different conclusion than the one reached by the arbitrator, but that by itself is no ground for setting aside the impugned award; (4) because the court had no jurisdiction to substitute at its own evaluation of the conclusion of law or fact with a view to conclude that the arbitrator had acted contrary to the bargain between the parties, as whether the partial amount was liable to be paid or damages liable to be sustained, is a decision within the competency of the arbitrator; and (5) because in any event, reasonableness of the reasons given by the arbitrator cannot be challenged as the appraisement of evidence by the arbitrator is never a matter which the court questions and considers. I have given may earnest and thoughtful considerations to rival contentions of both the parties so also the documents on record referred to during arguments, beside the decisions cited at the bar. Before examining the validity of the impugned award and the decree, I would first dwell upon crucial and significant question as to the parameters under which this Court can exercise its jurisdiction to set aside the impugned decree and the Award. Here, I think it proper to firstly refer the decisions cited by Shri Sharma on behalf of the appellant company and then the citations relied upon by Shri Bhandari for the caveater corporation. Re. Citations relied by the appellant. In Upper Ganges Valley Electricity Supply Co.
Here, I think it proper to firstly refer the decisions cited by Shri Sharma on behalf of the appellant company and then the citations relied upon by Shri Bhandari for the caveater corporation. Re. Citations relied by the appellant. In Upper Ganges Valley Electricity Supply Co. Ltd. vs. U.P. Electricity Board ( 1973 (1) SCC 254 ), one of the questions before the umpire was whether in the computation of the market value of its undertaking, the appellant was entitled to compensation for the service line which were laid with the help of contributions made by consumers. The umpire did not award compensation on service lines. Consequently, the appellant by an application under Section 30 of the Arbitration Act, 1940 challenged the validity of the award. The appeal by special leave was directed against the judgment of the High Court which had upheld the umpire's award. The Apex Court held as under : (i) The conditions of the license, the provisions of the Act and the legal position point only in one direction : that the appellant was entitled to receive compensation for the service lines laid with the help of contributions made by consumers. Section 7(1) of the Indian Electricity Act, 1910 conferred upon the appellant the right to receive the fair market value of 'works' amongst other assets. Under Section 2(n) 'works' includes an electric supply line and by reason of the definitions in Sections 2(f) and (1), a supply line includes a service line. Hence in making exclusion of the 'value of the portion of services installed at the cost of consumers' from the calculations for arriving at the market value of appellant's undertaking, the umpire misconducted himself in law, thereby rendering the award erroneous on its face." The Apex Court further observed that if parties constitute an arbitrator as the sole and final Judge of the disputes arising between them, they bind themselves as a rule to accept the award as final and conclusive, and an award is ordinarily not liable to be set aside on the grounds that either on facts or in law, it is erroneous, because even a mistake of law cannot vitiate the award unless the mistake is apparent on the face of the award.
The Apex Court also held as under : "Where the umpire made a speaking award there is no question of the construction of a document incorporated in the award or appended to it. If it is transparent from the award that a legal proposition which forms its basis is erroneous, the award would be liable to be set aside. Where, however, the error which has occurred in the award of the umpire relates to a matter which is distinct and separate from the rest of the award (as in the present case), the part which is invalid being severable from that which is valid, there is no justification for setting aside the entire award." In K. P. Poulose vs. State of Kerala ( 1975 (2) SCC 236 ), the arbitrator while giving an award on examination of the documents and after hearing the parties, held that jetting was not an authorised extra covered by the agreement and rejected the contractor's claim for extra payment for the jetting. The Kerala High Court set aside the judgment of the trial Court and restored the award of the arbitrator. The appellant contended that the appellant was guilty of legal misconduct in conducting the proceedings and two very material documents (Exs. P. 11) were absolutely ignored by him resulting in miscarriage of justice. The respondent contended that these documents were not even marked before the arbitrator, they were marked only before the subordinate Judge. The Apex Court held as under : "(a) Exhibits P. 11 and P. 16 are material documents to arrive at a just and fair decision to resolve the controversy between the department and in the contractor. In the background of the controversy in this case even if the department did not produce these documents before the arbitrator it was incumbent upon him to get hold of all the relevant documents including Exhibits P. 11 and P. 16. (b) Rejection of the claim on the ground that jetting, however, is not an authorised extra covered by the agreement cannot be anything but rationally inconsistent. The Award, therefore, suffers from a manifest error apparent ex-facie. (c) Under Section 30(a) of the Arbitration Act an award can be set aside when an arbitrator has misconducted himself or the proceedings. Misconduct under Section 30(a) has not a connotation of moral lapse.
The Award, therefore, suffers from a manifest error apparent ex-facie. (c) Under Section 30(a) of the Arbitration Act an award can be set aside when an arbitrator has misconducted himself or the proceedings. Misconduct under Section 30(a) has not a connotation of moral lapse. It comprises legal misconduct which is complete if the arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. It is in this sense that the arbitrator has misconducted the proceedings in this case." Thus the Apex Court set aside the award and the arbitrator was directed to complete the proceedings after considering all the relevant documents. On the aspect of Interpretation of Statues taking external aids i.e. from foreign law as to whether imports of principles of English law de hors the statutory provision, in Superintendence Company of India vs. Krishan Murgai ( 1981 (2) SCC 246 ), the Apex Court held that such a course is not permissible unless the statute is such that it cannot be understood without the aid of that law because when an English rule receives statutory recognition by Indian legislature, language of the Act determines the scope uninfluenced by any consideration derived from the previous state of law or the English law upon which it may be founded and it is the Court's duty to interpret the section on its plain language. The Apex Court further observed that a law does not cease to be operative merely because it is an unanchronism or because it is antiquated or because the reason why it originally became the law, would be no reason for the introduction of such a law at the present time. In afore cited case (supra) the Apex Court observed that assuming that the negative convenant contained in Clause (10) is valid and not hit by Section 27 of the Contract Act, what remains to be determined is whether the said covenant is on its terms enforceable at the instance appellant-company against the employee ?
In afore cited case (supra) the Apex Court observed that assuming that the negative convenant contained in Clause (10) is valid and not hit by Section 27 of the Contract Act, what remains to be determined is whether the said covenant is on its terms enforceable at the instance appellant-company against the employee ? While dealing with this aspect the Apex Court held as under : "While the Contract Act, 1872 does not profess to be a complete code dealing with the law relating to contracts, we emphasize that to the extent the Act deals with a particular subject, it is exhaustive upon the same and it is not permissible to import the principles of English law de hors that statutory provision unless the statute is such that it cannot be understood without the aid of the English law." "Where there is positive enactment of Indian legislature the proper course is to examine the language of the statute and to ascertain its proper meaning uninfluenced by any consideration derived from the previous state of the law or the English law upon which it may be founded." In Union of India vs. Jain Associates ( 1994 (4) SCC 665 = 1994(1) Arb. LR 409), the contract was terminated due to contractor's failure to execute the work within the extended period, against which the contractor (respondent Associates) laid proceedings under Section 20 of the Arbitration Act for reference to arbitrate the dispute. The joint arbitrators appointed thereon nominated the second respondent as umpire. The umpire entered upon the reference on failure of the arbitrator to make and publish the award within time. Thereafter, the contractor and the appellant made claim and counter claim respectively. The umpire refused to consider the counter claim on the ground of belated counter. Finally he made the award in favour of the contractor. The appellant challenged the award on diverse grounds under Sections 30 and 33 of the Act and ultimately the Division Bench of the High Court confirmed the award and awarded pendente lite interest. On a review, it was held that the Bench committed mistake in thinking that the umpire granted pendente lite interest and was a mistake of fact and law but had confirmed the pendente lite interest on its power.
On a review, it was held that the Bench committed mistake in thinking that the umpire granted pendente lite interest and was a mistake of fact and law but had confirmed the pendente lite interest on its power. Allowing the appeal, the Apex Court held as under : "The word 'misconduct' in Section 30(a) does not necessarily comprehend or include misconduct of fraudulent or improper conduct or moral lapse but does comprehend and include actions on the part of the arbitrator, which on the face of the word, are opposed to all rational and reasonable principles resulting in excessive award or unjust result or the like circumstances which tend to show non application of the mind to the material facts placed before the arbitrator or umpire had not applied his mind and not adjudicated upon he matter, although the award professes to determine them. Such situation would amount to misconduct. In other words, if the arbitrator or umpire is found to have not applied his mind to the matters in controversy and yet, has adjudicated upon those matters in law, there can be no adjudication made on them. The arbitrator/umpire may not be guilty of any act which can possibly be construed as indicative of partiality or unfairness. Misconduct is often used, in a technical sense denoting irregularity and not guilt of any moral turpitude, that is, in the sense of non application of mind to the relevant aspects of the dispute in its adjudication." "In this case the two claims for damages and loss of profit were founded on the breach of contract and Section 73 encompasses both the claims as damages. The High Court held that the umpire awarded mechanically different amounts on each claim. He also totally failed to consider the counter claim on the specious plea that it is belated counter statement. These facts would show not only the state of mind of the umpire but also non application of the mind, as is demonstrable from the above facts. It would also show that he did not act in a judicious manner objectively and dispassionately which would go to the root of the competence of the arbitrator to decide the disputes. Thus, the umpire committed misconduct in non-application of his mind in deciding claims.
It would also show that he did not act in a judicious manner objectively and dispassionately which would go to the root of the competence of the arbitrator to decide the disputes. Thus, the umpire committed misconduct in non-application of his mind in deciding claims. It being a non speaking award it is difficult to find whether he had applied his judicious mind in deciding which of the two claims the respondent would be entitled to, in particular, on the finding of the High Court in this behalf. Therefore, the award in respect of claims is set aside. Since the counter claim was not considered the matter requires determination. Accordingly the rejection of the counter claim would be treated as a nil award of the counter claim and for the above reasons it stands set aside and the matter is remitted to be adjusted afresh." In Rajasthan State Mines and Minerals Ltd. vs. Eastern Engineering Enterprises ( 1999 (9) SCC 283 = 1999 (3) Arb. LR 350 (SC), the Apex Court held that where fundamental terms of agreement between the parties are ignored by the arbitrator such arbitrator exceeds his jurisdiction even where the arbitration clause itself is widely worded. Such deliberate departure from the contract amounts not only to manifest disregard of the authority or misconduct, but may be tantamount to mala fide action and the situation would give rise to jurisdictional error which could be corrected by the Court and for that limited purpose the agreement between the parties would be required to be considered by the Court. So if the agreement specifically bars certain claims from being raised and yet an award has been made then Court must not uphold such award. The Apex Court also observed that in order to decide whether arbitrator has exceeded his jurisdiction, reference to the terms of the contract is a must and this ground is different from error apparent on the face of the award. It then observed that where the reference to the arbitrator is solely based upon the agreement between the parties and no other specific issue which would confer jurisdiction on the arbitrator to go beyond the terms of the contract, is referred to him, the arbitrator is bound by the terms of the contract.
It then observed that where the reference to the arbitrator is solely based upon the agreement between the parties and no other specific issue which would confer jurisdiction on the arbitrator to go beyond the terms of the contract, is referred to him, the arbitrator is bound by the terms of the contract. On the contention that the arbitrator acted beyond his jurisdiction in ignoring the stipulations of the contract, the Apex Court held that such contention would be covered by issues raising the questions whether the award was perverse, whether the arbitrator failed to apply his mind to pleadings, documents and evidence as well as to particular clauses of the contract. In a case of non speaking award, where the arbitrator gives an award ignoring fundamental terms of the contract between the parties, the Apex Court held that the arbitrator exceeds his jurisdiction and such an award may be set aside even if it is a non speaking one, inasmuch as the Court can set aside the award if arbitrator acts beyond his jurisdiction because Court cannot speculate as to reasons or probe mental process of arbitrator in case of it being a non speaking. On the aspect of determination as to how the action of arbitrator is in excess of jurisdiction, the Apex Court observed that agreement between parties must be considered as arbitrator cannot disregard its terms and what has to be seen is whether claim could be raised before arbitrator at all and even where claim raised on basis of widely worded arbitration clause, the award passed in respect of claim barred by agreement or law would be in excess of jurisdiction which is different from an error apparent on the face of the award and the Court cannot interfere in case of mere error of fact or law in reaching conclusion on the disputed question submitted for his adjudication.
In the ultimate analysis, the Apex Court concluded that the arbitrator cannot ignore the law or misapply if for the sake of what he thinks is just and reasonable as he is obliged to decide dispute according to law because he is not a conciliator and therefore, the arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract and deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action. In State of Orissa vs. Orient Paper & Industries Ltd., ( 1999 (3) SCC 566 = 1999 (2) Arb. LR 515 (SC), the Apex Court observed that where the arbitrator actually does not decide the points in dispute but merely agrees with an official note appended to the arbitration agreement and the questions referred to arbitration remain unanswered, the award may be set aside. In that case the award was made rule of Court by the Sub Judge and in appeal the High Court set it aside and remitted it to the arbitrator for redetermination, which was upheld by the Apex Court dismissing the State appeal while observing that the State cannot act like a private litigant and challenge every order made against it. The Apex Court further observed that it is not necessary that the State Government should have challenged the order of the High Court remitting the dispute to the arbitrator for redetermination thereby causing unnecessary expense and delay. In Grid Corporation of Orissa Ltd. and another vs. Balasore Technical School ( AIR 1999 SC 2262 = 1999 (2) Arb. LR 19 (SC)), the High Court was of the view that a Civil Court did not sit on appeal against the award and the power of the Court when an award is challenged, is rather limited. The Apex Court while taking into consideration principles of law laid down in its earlier decisions including New India Civil Erectors (P.) Ltd. vs. Oil & Natural Gas Corporation ( AIR 1997 SC 980 = 1997 (1) Arb. LR 292 (SC)) and Associated Engineering Co. vs. Government of Andhra Pradesh ( 1991 (4) SCC 93 = 1991 (2) Arb.
The Apex Court while taking into consideration principles of law laid down in its earlier decisions including New India Civil Erectors (P.) Ltd. vs. Oil & Natural Gas Corporation ( AIR 1997 SC 980 = 1997 (1) Arb. LR 292 (SC)) and Associated Engineering Co. vs. Government of Andhra Pradesh ( 1991 (4) SCC 93 = 1991 (2) Arb. LR 180 (SC)), observed that when an award is made plainly contrary to the terms of the contract out any misinterpretation but which are plainly contrary to the terms of the contract would certainly lead to an inference that there is an error apparent on the award resulting in jurisdictional error in it, and in such a case the Courts can certainly interfere with the award made by the arbitrator. In Dandasi Sahu vs. State of Orissa ( AIR 1990 SC 1128 =1990 (1) Arb. LR 5 (SC)), the Apex Court held that though the arbitrator is not bound to disclose as to what interpretation he has made and what inference he has derived from the documentary evidence, he is bound to refer in the award that he had considered all the documents placed before him no matter whether he relied on them or discards them from consideration and the arbitrator in his award ex-parte does not mention that he has referred to or considered the documents placed before him in respect of the original claim. The Apex Court then observed that the award could be interfered with only in limited circumstances as provided under Sections 16 and 30 of the Arbitration Act and in that situation the award has to be tested with circumspection and even will act within all the limitations on the powers of Court and probably because of these limitations, it could be held that if the amount awarded was disproportionately high having regard to the original claim made and the totality of the circumstances it could certainly be a case where the arbitrator could be said to have not applied his mind amounting to legal misconduct. Re. Citations relied by the Corporation. On the contrary, on behalf of the respondent-Corporation a series of decisions of the Apex Court as well as various High Courts have been referred to during the course of hearing.
Re. Citations relied by the Corporation. On the contrary, on behalf of the respondent-Corporation a series of decisions of the Apex Court as well as various High Courts have been referred to during the course of hearing. However, I would like to have a brief resume of the decisions which he cited while answering the contentions canvassed on behalf of the appellant. In State of Maharashtra vs. Nav Bharat Builders (1990 (2) Arb. LR 195 (SC)), the Apex Court observed that a non speaking award cannot be set aside when there is no error apparent on the face of it, especially where the liability is hot denied and the dispute relates only to the amount awarded. In the present case since the liability has been denied by the Company, the decision in Nav Bharat Builder's case, ibid, does not help the Corporation in any manner. In M/s. Hind Builders vs. Union of India ( AIR 1990 SC 1340 = 1990 (1) Arb. LR 349 (SC)), the Apex Court observed that it is difficult to say by merely reading the terms of contract that the arbitrators have erroneously interpreted the terms of the contract and it is not without significance that the departmental officers did not dispute the rate of the claim and equally, the arbitrators were experienced engineers and would not have passed what is now said to be, an astounding claim without thought because it is difficult to assume that all these persons have overlooked that the contractor had already been paid at Rs. 18 under item 4.09(a) especially when it is so stated on the face of the claim and this therefore is not a case there the arbitrators can be said to have ignored or overlooked a term of the contract : on the contrary they have acted upon a particular interpretation of certain clauses of the contract on which two views are possible.
In that situation the Apex Court held that this case certainly cannot be brought under the principle that the arbitrators have ex-facie exceeded the authority or jurisdiction conferred on them by the contract, and at worst, what can be said is that they may have committed an error in deciding the issues referred to them but the error is not apparent on the face of the award even if the contract is read as part of it both because the arbitrators have not given their reasoning and because the view taken by them the relevant terms of the contract cannot be said to be clearly erroneous. The Apex Court laid down the principle of law that in a matter on which the contract is open to two equally plausible interpretations, it is legitimate for the arbitrators to accept one of the other of the available interpretations and, even if the Court may think that the other view is preferable, the Court will not and should not interfere. According to the Apex Court, this view is too well settled to need any reference to any precedent other than Sudarsan Trading Co.'s case (Sudarsan Trading Co. vs. Government of Kerala ( AIR 1989 SC 890 -1989 (2) Arb. LR 6 (SC)). In Raipur Development Authority vs. M/s. Chokhamal Contractors ( AIR 1990 SC 1426 = 1989 (1) Arb. LR 430 (SC)), the award was not supported by reasons but 5 Judge Bench of the Apex Court held inter alia that absence of reasons in the award cannot be a ground for remission or setting it aside because giving reasons in support of a decision could not be considered to be a rule of natural justice either under the law of arbitration or under administrative law. The Apex Court then observed that when the parties to the dispute insist upon reasons being given, the arbitrator is under an obligation to give reasons, but there may be many arbitrations in which parties to the dispute may not relish the disclosure of the reasons for the awards.
The Apex Court then observed that when the parties to the dispute insist upon reasons being given, the arbitrator is under an obligation to give reasons, but there may be many arbitrations in which parties to the dispute may not relish the disclosure of the reasons for the awards. The Apex Court also observed that it is a well known rule of construction that if a certain interpretation has been uniformly put upon the meaning of a statute and transactions such as dealings in property and making of contracts have taken place on the basis of that interpretation the Court will not put a different interpretation upon it which will materially affect those transactions, and the Courts should be slow in taking decisions which will have the effect of shaking rights and titles which have been founded through a long time upon the conviction that a particular interpretation of law is the legal and proper one and is one which will not be departed from. According to the Apex Court, when reasons are given in support of the awards and those reasons disclose any error apparent on the face of record, people have not refrained from questioning such awards before the Courts. In State of Orissa vs. Dandasi Sahu ( AIR 1988 SC 1791 = 1988 (2) Arb. LR 384 (SC)), the Apex Court observed that it is settled law that award without reasons are not bad per se, and indeed it can be set aside only on the ground of misconduct or on an error of law apparent on the face of award. However, when arbitrator commits a mistake either in law or in fact in determining the matters referred to him, where such mistake does not appear on the face of the award and the documents appended to or incorporated so as to form part of it, the award will neither be remitted nor set aside. In Indian Oil Corporation Ltd. vs. Indian Carbon Ltd. ( AIR 1988 SC 1340 = 1988 (1) Arb.
In Indian Oil Corporation Ltd. vs. Indian Carbon Ltd. ( AIR 1988 SC 1340 = 1988 (1) Arb. LR 394), the Apex Court observed that where reasons for giving the award are stated in the award and no error of law could be pointed out in those reasons; there was no error of fact and the view taken by the arbitrator was a possible view to take; and the arbitrator has made his mind known on the basis of which he has acted; that is sufficient to meet the requirements even if it be reasons should be stated in the award. The Apex Court further observed that the award could not therefore be set aside on ground that it was not a reasoned award. It is one thing to say that reasons should be stated and another thing to state that a detailed judgment be given in support of an award. Even if it be held that it is obligatory to state the reasons, it is not obligatory to give a detailed judgment. In Jivarajbhai vs. Chintamanrao ( AIR 1965 SC 214 ), the Apex Court held that the power of the Court to set aside the award is restricted to cases set out in Section 30 of the Arbitration Act, 1940, and however, it is not open to the Court to speculate, where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion. The Apex Court further observed that on the assumption that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the Court cannot proceed to determine whether the conclusion is right or wrong; and it is not open to the Court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of his award. The Apex Court held as under : "If the interpretation of the deed of partnership lies with the arbitrator, then there is no question of sitting in appeal over his interpretation; but if the parties set limits to action by the arbitrator then the arbitrator has to follow the limits set for him, and the Court can find that he has exceeded his jurisdiction on proof of such action.
The assumption of jurisdiction not possessed by the arbitrator renders the award, to the extent to which it is beyond the arbitrator's jurisdiction, invalid. And if it is not possible to sever such invalid part from the other part of the award, the award must fail in its entirety." In M/s. Allen Berry & Co. (P.) Ltd. vs. Union of India ( AIR 1971 SC 696 ), the Apex Court held that even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake. Mere reference to the contract in the award is not to be held as incorporating it. In M/s. Hindustan Tea Co. vs. M/s. K. Shashi Kant & Co. ( AIR 1987 SC 81 = 1987 (1) Arb. LR 29 (SC)), the Apex Court observed that under the law, the arbitrator is made the final arbiter of the dispute between the parties. The award is not open to challenge on the ground that the arbitrator has reached a wrong conclusion or has failed to appreciate facts. Where the award which was a reasoned one was challenged on the ground that the arbitrator acted contrary to the provisions of Section 70 of the Contract Act, the Apex Court held that the same could not be set aside. In Firm Madanlal Roshanlal vs. Hukumchand Mills Ltd., Indore ( AIR 1967 SC 1030 ), the Apex Court inter alia observed that the arbitrator is not bound to give a separate award for each claim but can give a lump-sum award; and on the aspect of error of law or fact, it then held that arbitrator's award on both fact and law is final and there is no appeal from his verdict, thereby Court cannot review his award and correct any mistake in his adjudication, unless objection to legality of award is apparent on face of it and that apart when arbitrator has given no reason for award, nor there is any legal proposition as basis of award, the contention that there are errors of law on face of award must be rejected.
In Delhi Municipal Corporation vs. M/s. Jagannath Ashok Kumar ( AIR 1987 SC 2316 ), the Apex Court inter alia observed that the reasonableness of the reasons given by an arbitrator in making his award cannot be challenged in a special leave petition, and that the arbitrator is the sole Judge of the quality as well as quantity of evidence and it will not be for the Supreme Court to take upon itself the task of being a Judge of the evidence before the arbitrator. The Apex Court also held that it may be possible that on the same evidence the Court might have arrived at a different conclusion than the one arrived at by the arbitrator but that by itself is not ground for setting aside the award of an arbitrator. Since in that case, there was no evidence of violation of any principle of natural justice, the Apex Court dismissed the petition for leave to appeal holding that the award of the arbitrator was assailed on trivial grounds and the challenge was rightly rejected by the High Court. In Puri Construction Pvt. Ltd. vs. Union of India ( AIR 1989 SC 777 = 1989 (1) Arb. LR 306 (SC)), the Apex Court observed that when a Court is called upon to decide the objections raised by a party against an arbitration award, the jurisdiction of the Court is limited, as expressly indicated in the Act, and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits. In Vishwanath Sood vs. Union of India ( AIR 1989 SC 952 = 1989 (1) Arb. LR 357), time was made essence of construction contract with a clause stipulating compensation to be paid by contractor for delay and therefore the decision of Superintending Engineer on amount of compensation was made final under the clause, the Apex Court held that the matter as to amount of compensation could not be referred to arbitrator and thereby decision of Himachal Pradesh High Court was reversed by holding that in a case of non speaking award, conclusions reached by arbitrator after considering material placed before him do not call for interference as there was no error on face of award and, therefore, affirmation of award by High Court without interference was proper. In M/s. Sudarsan Trading Co.
In M/s. Sudarsan Trading Co. vs. The Government of Kerala (supra), the arbitrator had merely set out the claims and given history of the claims and then awarded certain amount inasmuch as he had not spoken his mind indicating why he has done what he has done; he has narrated only how he came to make the award. Therefore, the Apex Court observed that in the absence of any reasons for making the award, it is not open to the Court to interfere with the award and that apart, in any event, reasonableness of the reasons given by the arbitrator cannot be challenged because appraisement of evidence by the arbitrator is never a matter which the Court questions and considers. The Apex Court also observed that interpretation of contract is a matter for arbitrator and where amount were awarded by arbitrator by taking particular view of the contract, the Court cannot substitute its own decision and, therefore, the High Court had no jurisdiction to examine the different items awarded clause by clause by the arbitrator and to hold that under the contract these were not sustainable in the facts found by the arbitrator. After having taken into consideration fact findings reached by the arbitrator, the Apex Court held that the Court had no jurisdiction to do substitution of its own evaluation of the conclusion of law or fact to come to the conclusion that the arbitrator had acted contrary to the bargain between the parties, because whether a particular amount was liable to be paid or damages liable to be sustained, was a decision within the competency of the arbitrator. The Apex Court then held that by purporting to construe the contract, the Court could not take upon itself the burden of saying that this was contrary to the contract and as such beyond jurisdiction. Their Lordships further held that it has to be determined that there is a distinction between disputes as to the jurisdiction of the arbitrator and the disputes as to in what way that jurisdiction should be exercised. In this view of the matter, their Lordships overruled the decision of the Kerala High Court in State of Kerala vs. Poulose ( 1987 (1) KLT 781 = 1988 (2) Arb. LR 15).
In this view of the matter, their Lordships overruled the decision of the Kerala High Court in State of Kerala vs. Poulose ( 1987 (1) KLT 781 = 1988 (2) Arb. LR 15). Thus, according to the Apex Court, once there is no dispute as to the contract, what is the interpretation of that contract is a matter for the arbitrator and on which Court cannot substitute its own decision. In State of Andhra Pradesh vs. R. V. Ravanim ( AIR 1990 SC 626 = 1990 (1) Arb. LR 1 (SC)), arbitrator passed award considering the claim made on the basis of escalation and damages but awarding the total sum insofar as he finds admissible in respect of claims which arbitrator had adjudged, the Apex Court held that award cannot be set aside on ground of being passed in excess of jurisdiction or by an error apparent on face of record. The Apex Court also observed that only in a speaking award the Court can look into the reasoning of the award but it is not open to the Court to probe the mental process of the arbitrator and speculate where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. It then observed that in case of an error apparent on the face of the record it has to be established that an item or an amount which the arbitrator had no jurisdiction to take into consideration has been awarded or granted. Similarly it has also been observed that in the matter of challenging the award, there are often two distinct and different grounds. One is an error apparent on the face of the record and the other is that the arbitrator has exceeded his jurisdiction and in the latter's case the Court can look into the arbitration agreement but under the former, it cannot, unless the agreement was incorporated or recited in the award.
One is an error apparent on the face of the record and the other is that the arbitrator has exceeded his jurisdiction and in the latter's case the Court can look into the arbitration agreement but under the former, it cannot, unless the agreement was incorporated or recited in the award. In this view of the matter, 3 Judge Bench of the Apex Court held that an award may be remitted or set aside on the ground that the arbitrator, in making it, had exceeded his jurisdiction and evidence of matters not appearing on the face of it, will be admitted in order to establish whether the jurisdiction had been exceeded or not because the nature of the dispute is something which has to be determined outside the award whatever might be said about it in the award or by the arbitrator. In Goa, Daman & Diu Housing Board vs. Ramakant V. P. Darvotkar ( AIR 1991 SC 2089 = 1991 (2) Arb. LR 392 (SC), the Apex Court found the award showing that arbitrator had considered all specific issues raised by parties and further found findings recorded by him after giving cogent reasons and in these circumstances, it held that it cannot be said that arbitrator has misconducted himself or in proceedings in matter of giving awards and consequently order by High Court remitting awards back to arbitrator for giving reasons was set aside. In Hindustan Construction Co. Ltd. vs. State of Jammu & Kashmir ( AIR 1992 SC 2192 = 1992 (2) Arb. LR 412 (SC)), the decision of Jammu & Kashmir High Court setting aside award on ground of error apparent on face of award was held to be not proper because the arbitrator was not shown to have exceeded his jurisdiction or travelled beyond the contract while the award was a non speaking one. The Apex Court observed as under : "10. There is, however, apart from the existence of an 'error apparent on the face of the award', another angle from which non speaking award can be considered by the Court and, if necessary, interfered with. This ground for impeaching a non speaking award and its limitations have been explained by this Court in the Sudarsan Trading Co.
There is, however, apart from the existence of an 'error apparent on the face of the award', another angle from which non speaking award can be considered by the Court and, if necessary, interfered with. This ground for impeaching a non speaking award and its limitations have been explained by this Court in the Sudarsan Trading Co. earlier referred to." Having benefited by the principles of law laid down by the Apex Court in the decisions cited by the Caveater Corporation which are not disputed at the bar nor by this Court, however, I am of the considered view that the facts in those cases are totally distinguished to the present set of controversial circumstances for the challenge in question inasmuch as in the present case, the impugned award is neither a non-speaking nor a non reasoned nor such case is being urged by the Company while challenging the impugned Award herein before this Court. Moreover, I am very well conscious of the barriers put by the afore explained principles of the law laid down by the Apex Court in a catena of decisions (supra) in the context of powers and jurisdiction of this Court while adjudging the award consisting of reasons assigned by the arbitrator, viz.
Moreover, I am very well conscious of the barriers put by the afore explained principles of the law laid down by the Apex Court in a catena of decisions (supra) in the context of powers and jurisdiction of this Court while adjudging the award consisting of reasons assigned by the arbitrator, viz. Restriction on exercise of powers : (1) that Court cannot substitute its own decision in case of no dispute as to the contract because what is the interpretation of that contract is a matter for the arbitrator; (2) that only in case of speaking award, Court can look into the reasoning of the award but cannot probe mental process of the arbitrator where no reasons are given by the arbitrator; (3) that in case of challenge to the award, there are often two distinct and different grounds, i.e. (i) an error apparent on the face of the record, and (ii) the arbitrator has exceeded his jurisdiction; (4) that by purporting to construe the contract, the Court cannot take upon itself the burden of saying that it was contrary to the contract so beyond jurisdiction; (5) that reasonableness of the reasons assigned in the award cannot be challenged by appraisement of evidence because interpretation of contract is a matter for arbitrator and the Court cannot substitute its own decision; (6) that the court has no jurisdiction to sit in appeal and examine correctness of the award on merits, because it is not for the Court to take upon itself the task of being a Judge of the evidence before the arbitrator; (7) that the Court cannot review the award and correct any mistake in adjudication of the arbitrator unless objection to legality of award is apparent on face of it; (8) that even if mistake either in law or in fact committed by the arbitrator does not appear on the face of the award or in a document appended to it, the award can neither be remitted nor set aside notwithstanding the mistake; (9) that even if two views are plausible and the Court thinks of view other than one of arbitrators then the Court should not interfere therewith; (10) that the Courts should be slow in taking decisions having the effect of shaking rights and titles founded on a particular interpretation of law, meaning thereby the Court will not put a different interpretation which will materially affect those transactions such as dealings in property and making of contracts; (11) that where the liability is not denied and the dispute relates only to the amount awarded then certainly there is no error apparent on the face of it; (12) that once the reasons are given in support of the award and if those reasons disclose any error apparent on the face of record, people are not refrained from questioning such an award before the Courts; and (13) that even an award without reasons are not bad per se and it can be set aside only on the grounds of misconduct or on an error of law apparent on the face of the award, and in case an arbitrator commits a mistake either in law or in face in determining the dispute referred to him for arbitration and where such mistake does not appear on the face of the award and documents appended thereto or incorporated therein forming its part, such an award will neither be remitted nor set aside.
Contemporaneously, I must be fair to have a brief resume of the circumstances being wrong out of the citations relied upon on behalf of the Company so also the Corporation where the court can remit or set aside the award, so as to decide the crucial question raised herein as to whether the impugned award deserves to be set aside because of the arbitrator having not applied his mind amounting to legal misconduct or not : Circumstances for exercise of jurisdiction to remit or set aside Award : (1) that the award could be interfered with only in limited circumstances as provided under Sections 16 and 30 of the Act but subject to the test with circumspection; (2) that where an award is passed contrary to the terms of the contract but not by misinterpretation, and misinterpretation is contrary to the terms of the contract then certainly it may lead to an interference as to an error apparent on the award resulting in jurisdictional error in it whereupon the Court can certainly interfere with the award; (3) that the arbitrator cannot ignore the law or misapply for the sake of what he deems it just and reasonable as he is obliged to decide arbitration dispute according to law meaning thereby the arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract and departure or conscious disregard of the contract and if it is so then certainly it manifests the disregard of his authority or is misconduct on, his part tantamounting to mala fide action; (4) that if it is non speaking award having been given ignoring fundamental terms of the contract between the parties then certainly the arbitrator can be held to have exceeded his jurisdiction thereby his award can be set aside because the Court cannot speculate as to reasons, or probe mental process of arbitrator in case of his award being a non-speaking; (5) that since the arbitrator is bound by terms of the contract and in case such stipulations are ignored, then certainly the arbitrator acted beyond his jurisdiction for which the questions as to whether the award was perverse or whether the arbitrator failed to apply his mind to pleadings, documents and evidence as well as to particular clauses of the contract, would cover the issues for setting aside the award; (6) that departure from the contract amounts not only to manifest disregard of the authority or to misconduct but tantamounting to mala fide action giving rise to jurisdictional error, which can be corrected by the Court and for that limited purpose, reference to the terms of the contract is a must and this ground however is different from error apparent on the face of the award; (7) that 'misconduct appearing in Section 30(a) of the Act does comprehend and include actions on the part of the arbitrator, which on the face of it, are opposed to all rational and reasonable principles resulting in excessive award or unjust result or the like circumstances which tend to show non-application of the mind to the material facts placed before the arbitrator, meaning thereby if the arbitrator is found to have not applied his mind to the matters in controversy and yet, has adjudicated upon those matters in law, there can be no adjudication made of them thereby warranting interference by the Court so as to set aside or remit the award for determination afresh; and (8) that similarly misconduct under Section 30(a) has not a connotation of moral lapse but comprises legal misconduct, which is complete in case the arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents and it is in this sense that the arbitrator has misconducted the proceedings.
Thus, keeping in mind the circumstances, explained above, in the context of jurisdiction of this Court interference in the impugned award, and with reference to the barriers and yardsticks with circumspection for the test of scrutiny of the reasons assigned in the impugned award, let me hasten to decide the controversy at issue on which the fate of this appeal hinges. Now, let me advert to state conclusions drawn by the arbitrator for passing the impugned award. The Arbitrator arrived at following conclusions : Re.
Now, let me advert to state conclusions drawn by the arbitrator for passing the impugned award. The Arbitrator arrived at following conclusions : Re. Conclusions drawn by the arbitrator : (1) that each division of the Corporation was considered to be a unit for comparing the performance of the retreaded tyres obviously because in each division, new and retreaded tyres were used in similar conditions meaning thereby (a) vehicles were the same, (b) routes were the same, (c) road and weather conditions were the same, (d) driving habits of driver and general level of maintenance of vehicles in a division were also same, for both new and retreaded tyres, and therefore, the performance of retreaded tyres in each division was rightly compared with performance of new tyres; (2) that the performance of retreaded tyres was much lower for which the company should compensate the claimant on pro rata basis in terms of Clause 5 of the agreement; (3) that there is no specific clause in the agreement under which the suitability of tyres for retreading was to be judged; (4) that on the basis of joint inspection reports of 5.10.1991, 29.10.1991, and other reports dated 23.9.1991 and 20.11.1991 which were annexed to the reply of the company and which mentioned the number of tyres to be scrapped, fit for retreading after repairs, so also the telegram dated 24.8.1992 sent by the company to the Corporation stating that inspection date was acceptable to them thereby they were not deputing their representative, the arbitrator concluded that tyres were retreaded after due scrutiny and retreading after repairs also was the accepted practice, as is confirmed by the company that Indag repair material was not used by the claimant; (5) that once the tyres were retreated with or without repairs their performance must have come into minimum standard laid down in Clause 5 of the agreement; (6) that once the tyre was retreaded, the company cannot say that they were not responsible if the treads did not wear out but the tyres failed for other reason; (7) that even repaired tyres or tyres retreaded without repairs, if failed for reasons like burst cannot be excluded while computing average performance of all retreaded tyres.
Even new tyres fail for other reasons and when average life is to be compared all tyres used have to be taken into account; (8) that, Clause 3 and 4 of the contract did not make it obligatory for the claimant to buy repair material also from the Indag Company because it stipulates purchase of retreading material only from the Indag Company. According to the arbitrator, the retreading material and the repair material are two different things and the former will not include the latter; (9) that as regards issue as to the use of tyres in each division in similar condition, as is stipulated in Clause 5 of the contract, the arbitrator observed inter alia that expression 'similar condition' does not mean 'same condition'; that performance of the retreaded tyres was to be seen division wise; in a division, types of roads, vehicles used thereon, weather conditions and level of upkeep of vehicles were similar and therefore the tyres used on the vehicles in a division would be considered tyres used in similar conditions; (10) that as regards emphasis laid by the Company on the use of retreaded tyres on rear axle and use of the new tyres on the front axle, the arbitrator after having taken into consideration cross examination of V. S. Barar observed that no doubt V. S. Barar has admitted that new tyres were used on front axle and retreaded tyres were used on rear axle, but there is noting to show that the life of tyres used on front and rear wheels will be materially different; (11) as regards assessment of the performance, the arbitrator observed that the Corporation has compared performance of retreaded tyres with that of new tyres in each division where road conditions, vehicles used, weather conditions, general driving skills of its drivers level of maintenance and upkeep of vehicles were found to have been similar for new tyres as also retreaded tyres, and such an assessment was held to be strictly in conformity with Clause 5 of the agreement and that notwithstanding the acceptance by the company of an error of judgment in guaranteeing 46,000 kms. for a retreaded tyre, on the basis of statements and letters appended to the claim, the arbitrator held that retreaded tyres performance fell short of the guaranteed kilometer age, i.e. 46,000 kms.
for a retreaded tyre, on the basis of statements and letters appended to the claim, the arbitrator held that retreaded tyres performance fell short of the guaranteed kilometer age, i.e. 46,000 kms. and thereby claim of the Corporation was found fully justified; (12) the arbitrator lastly concluded that when actual kilometer age fell short of guaranteed kilometer age, the loss suffered by the Corporation has rightly been calculated on prorate basis to the tune of Rs. 1,19,53,430.92 p. Analysis and Conclusions of this Court. On an overall conspectus and having carefully considered entire gamut of the circumstances of the case, referred to above, I must observe that the Indag Company has not at all disputed that some of retreaded tyre's performance was less than 46,000 kms. on an average or less than 95% of new tyre's life, as has rightly been taken into account by the arbitrator under the impugned award. However, their only assertion as spelt out not only before the arbitrator but also before the subordinate court so also this Court, was inter alia that during assessment of performance of retreaded tyres only such tyres could have been considered as were removed after wearing out of retreads, and the tyres which had failed for other reasons should have been excluded; secondly repair material of Indag Company was not used for repairing tyres meant for retreading; and finally that as the retreaded tyres were not used on the same axles as the new tyres, the requirement of similar conditions laid down in Clause 5 was not fulfilled. Now the decks are clear. And, only the fateful question remains to be decided as to whether the impugned award or misinterpretation based on afore quoted conclusions is contrary to the terms of the contract leading to an interference that the award or the conclusions therein suffer from error apparent on the face of material on record or the arbitrator has not applied his mind to the documents and reference to the terms of the contract, resulting into excessive award or unjust result being in manifest disregard of the authority and has he thus committed a legal misconduct, warranting interference by this Court either for remitting and/or setting aside the award, itself. Clause 5 of the contract as to 'warranty for retreaded tyres contemplates as under : "M/s. Indag Rubber Ltd., New Delhi will guarantee the performance of 46,000 Kms.
Clause 5 of the contract as to 'warranty for retreaded tyres contemplates as under : "M/s. Indag Rubber Ltd., New Delhi will guarantee the performance of 46,000 Kms. average life or 95% of new tyres in each division in similar condition whichever is less and the performance will be assessed initially after 12 months on the commissioning of plant and production of tyres and later on the performance will be assessed on quarterly basis. On failure of guarantee kms. the firm is bound to compensate on pro rata basis." This warranty clause is divided into three parts. First part pertains to guarantee as to the performance while second part relates as to time of assessment of performance whereas third part provides for compensation on failure of guaranteed average life of tyres. As regards interpretation as to expression 'in each division in similar condition' used in warranty Clause 5, with strict reference to what is stated in terms of Clause 5 of the agreement itself, it is crystal clear rather not denied or disputed by any of the parties to it that these words expressly imply that new tyres so also retreaded tyres both should have been used in each division in similar condition. What is the import of 'each division'; and 'similar condition' with reference to the contract and accordingly I am of the considered view that 'each division' means a unit for comparative assessment of the new and retreaded tyres and a division of the corporation was rightly considered to be a unit. To make it explicitly clear, I must say and cite an example that though Jaipur for the Corporation itself is a complete and whole division in Rajasthan State to provide transport facility to public at large but it has also made distinct units for the purposes of better administration and providing transport service to the people and its employees on different routes with different conditions of roads by different vehicles. Suppose in Jaipur Division the Corporation provide transport service by plying vehicles on two routes, one is Jaipur Delhi or any other National Highway and another may be of Kuchcha route or non-national highway connecting villages to Jaipur or its sub-tehsils/towns.
Suppose in Jaipur Division the Corporation provide transport service by plying vehicles on two routes, one is Jaipur Delhi or any other National Highway and another may be of Kuchcha route or non-national highway connecting villages to Jaipur or its sub-tehsils/towns. So, according to warranty clause to make or put similar condition in each division, two distinct units can be considered namely one vehicles plying on Kuchcha route i.e. non-national highway and another vehicles plying on national highway by reasonably and rationally presuming that vehicles plying on National highways may be giving higher mileage than on non-national highway and to that extent I am having different views in order to give a reasonable import to expression 'in each division in similar condition' of Clause 5. Thus, except an additional import given by this Court (supra), I have no option but to affirm the import given by the arbitrator as to the similar condition in each division for new and retreaded tyres, i.e. the vehicles were same, weather conditions were the same, driving habits of driver and general level of maintenance of vehicles in a unit in a division were the same. However, as regards similar condition for use of new and retreaded tyres on the same axle or different axle, it has been the case of the Indag Company that as per the evidence of V. S. Barar Officer of the Corporation, normally new tyres are fitted on the front axle while retreaded tyres on the rear axle.
However, as regards similar condition for use of new and retreaded tyres on the same axle or different axle, it has been the case of the Indag Company that as per the evidence of V. S. Barar Officer of the Corporation, normally new tyres are fitted on the front axle while retreaded tyres on the rear axle. It has further been the case of the Indag Company that a tyre fitted on rear axle normally gives 20% to 30% less life than fitted on the front axle because rear axle is the drive axle inasmuch as tyres used on rear axle were subjected to more load and interaction thereby tyres used on rear axle always often wear out early whereas front axle is free rolling and hence according to the company, both new and retreaded tyres should have been used on the same axle in similar condition for the purpose of assessment of their life, but the Corporation having failed to use both such tyres on the same axle it cannot be said that those tyres were used in similar condition thereby assessment made by the Corporation on the basis of use of new and retreaded tyres on different axle was faulty thus disentitling it to any claim under arbitration proceedings. The Company placed reliance upon letter of the ASRTU referred to by the arbitrator in the impugned award. Though I am not inclined to accede to the case of the Indag Company referred to above, however, in my considered view, merely because retreaded and new tyres were not used either on front axle or rear axle or the Corporation has been using retreaded tyres on rear axle and new tyres on front axle, its entire claim of compensation under arbitration proceedings should have been thrown out of the board. Further it cannot be lost sight of the fact that on the rear axle two tyres on each of sides (left and right) are fitted on, each of the vehicles with a view to smooth driving and plying on the road and carry out load equally, whereas on the front axle only one tyre on each of sides is fitted.
Further it cannot be lost sight of the fact that on the rear axle two tyres on each of sides (left and right) are fitted on, each of the vehicles with a view to smooth driving and plying on the road and carry out load equally, whereas on the front axle only one tyre on each of sides is fitted. Use of retreaded tyres for assessment purpose cannot be restricted to one axle (i.e. front axle) as is being pleaded by the Indag Company, because it is not the intention being disclosed in the terms especially in warranty clause of the contract, itself. It was neither incumbent nor obligatory nor mandatory nor binding under warranty clause or with reference to the contract's terms that retreaded tyres so also new tyres could have been fitted on front axle for a rational assessment of their comparative performance otherwise on failure to give guaranteed mileage, the Corporation could not have been allowed to claim compensation on pro rata basis. It is seen in common parlance that on front axle of heavy motor vehicles only new tyres are fitted because in case of retreaded tyres being fitted on front axle, and upon having caused any burst or cuts thereto, accident to the vehicle may have resulted whereas such chances of accident are rare in case of retreaded tyres being fitted on rear axle because of additional tyres being in support thereto in each heavy motor vehicles. Thus, I do not find any merit in the contention, of Shri Sharma in this context. Hence in my considered view, it makes no difference if new tyres were fitted on the front axle and retreaded tyres on the rear axle by the Corporation to their vehicles or vice versa. Hence it cannot be held that there was no similar condition for use of new and retreaded tyres being fitted on the axles of the vehicles so as to assess performance of these tyres under the contract, if alignment on the front axle is perfectly in order with no complaint thereto and bearings are having in good condition to the rear axle, then notwithstanding the retreaded tyres are fitted either on rear axle and new tyres on front axle or vice versa, their performance would in no case be reducing or lower to the minimum standard.
Such is not the case of the Indag Company at any stage in these arbitration proceedings. Thus, 'similar condition' does not mean that the retreaded and new tyres both are used on the same vehicle notwithstanding they are fitted on different axles either front or rear or vice versa. Such an interpretation is necessarily to be given for comparative assessment of the performance of both retreaded and new tyres with a view to claim compensation on pro rata basis in case retreaded tyres have failed to give warranty mileage under Clause 5 of the contract. As regards exclusion of tyres removed prematurely on account of other reasons like bursts or cuts or improper repair before retreading, it has been contended on behalf of the Indag Company (1) that repairing of a tyre prior to its retreatment was an essential part of process of retreading, and that since the Corporation did not purchase repair material from the Indag Company and had used repair material after having purchased it from some other firms, the Corporation having violated terms of the contract, cannot claim that the retreaded tyres did not perform the warranty life, inasmuch as tyres having not been properly repaired before its retreading and thereby removed prematurely on account of other reasons including abnormal road conditions or cuts or bursts ought not to have been taken into consideration for assessment of performance of life of such retreaded tyres whereas as per calculation sheet furnished by the Corporation, approximately 25% to 30% of retreaded tyres removed prematurely have also been included for assessment which was incorrect on the part of the Corporation. In other words, much emphasis was laid on behalf of the Company that repairing of tyre is a pre-requisite condition for retreading of tyres meaning thereby repair is an essential part of retreading itself and, therefore, not purchasing repair material from the company was a clear breach of Clause 3 of the agreement and in these circumstances the Corporation could not have made a claim for loss of warranty life unless the entire process of treading including repairing of tyre was done with Indag material. I have carefully perused the terms of the contract especially Clauses 3 and 5. Here I must observe that in an arbitration matter the dispute has to be adjudicated with reference to the terms of the contract, itself, and not beyond it.
I have carefully perused the terms of the contract especially Clauses 3 and 5. Here I must observe that in an arbitration matter the dispute has to be adjudicated with reference to the terms of the contract, itself, and not beyond it. Clause 3 only contemplates and makes it obligatory that in the cold processing plant of Indag tyre process, no other retreading material except of Indag will be used. Either in Clause 3 or warranty Clause 5 or any other terms of the contract though it is contemplated for retreading inasmuch as the contract does not define that repair is essential part of retreading otherwise retreading without prior repair will disentitle the Corporation to claim for compensation in case of failure of warranty life of retreaded tyres. Similarly the contract does not stipulate that tyres Indag will be excluded for assessment of claim for compensation on pro rata basis, in case of such retreaded tyres removed prematurely on account of other reasons like abnormal road conditions or cuts or bursts etc. there of the terms of the contract stipulates as to method of assessment or as to which of material would be excluded or as to what will be essential part of retreading either prior repairing with Indag material or as to what will be fate in case of breach of terms of the contract. There is no covenant in the agreement that in case assessment made prior to stipulated period under Clause 5 (warranty) would disentitle the Corporation to claim compensation. In the absence of any specific covenant, no other interpretation as is being pleaded by the Company can be given so as to discard whole of the claim, itself. Warranty Clause 5 only makes explicit that on failure of guarantee kms the firm is bound to compensate on pro rata basis. Thus, convenant is specific as to comparative assessment for failure of retreaded tyres to give guarantee kms with a view to hold the Firm to compensate on pro rata basis. According to first part of warranty Clause 5, the Indag Company had guaranteed to give mileage performance of 46,000 kms. or 95% of new tyres each division in similar condition, whichever is less.
According to first part of warranty Clause 5, the Indag Company had guaranteed to give mileage performance of 46,000 kms. or 95% of new tyres each division in similar condition, whichever is less. Since expression 'whichever is less' is used in this first part therefore, logical conclusion is that with a view to adjudge the guaranteed performance two things are to be worked out, firstly as to what the retreaded tyres had given performance and secondly as to what is 95%. Performance of new tyres, in each division in similar condition, Unless two things, ibid, are worked out, it could not be assessed or compared as to what is less; meaning thereby suppose, if new tyres, in each division in similar condition had given 45,000 kms. mileage performance and its 95% mileage would be 42750 whereas retreaded tyres had given 43000 kms in similar 43,000 kms in similar condition in each division, then it cannot be held that retreaded tyres had failed to give guaranteed mileage, because according to use of expression 'whichever is less' in warranty Clause 5, the Indag company had not to give performance of mileage to the extent of 46,000 kms only but less than it (46,000 kms), i.e. 95% of new tyres which comes less than 46,000 kms. and in that event how could it be held that retreaded tyres had failed bind the company to compensate on pro rata basis. Thus viewed from this angle, rational and reasonable assessment by way of comparison with reference to expression 'whichever is less' as used in warranty Clause 5 was not only must but also mandatory according to the contract, itself. Hence, I find substance in the contention of Shri Sharma and therefore hold that essential features of warranty clause was that the comparative assessment of new tyre life with retreaded tyre was necessarily to be made in each division in similar condition. My attention was drawn to several inspection reports including of 19.11.1991, 20.11.1991, 4.10.1991, 5.10.1991, 12th and 13th November, 1991. I have given my anxious consideration to these reports and other facts appearing on other documents produced along with claim and reply thereto.
My attention was drawn to several inspection reports including of 19.11.1991, 20.11.1991, 4.10.1991, 5.10.1991, 12th and 13th November, 1991. I have given my anxious consideration to these reports and other facts appearing on other documents produced along with claim and reply thereto. In the light of what has been stated above, I am of the considered view that method of assessment being not in conformity to the reference of the warranty Clause 5, i.e. comparative assessment of performance of retreaded tyres with new ones, was improper. It is an admitted case of the Corporation and not disputed by the Company that as per figures shown by the Corporation they had used 14,395 retreaded tyres from June 1991 to May, 1992, out of which total tyres received after completing retreaded life were 7,797. It is the case of the company that even though 14,395 tyres had been retreaded from June 1991 to May, 1992 but no data as to such tyres have been furnished to the Indag. As per report of inspection held on 19th November, 1991, total 148 tyres were inspected. Similarly as per report of second inspection held on 20.11.1991, 30 tyres were inspected. Apart from joint inspection reports, three other inspections were held of 452 tyres on 4.10.1991, 135 tyres on 29.10.1991 and 522 tyres on 12.11.1991. On the basis of these inspections the Corporation claimed that the tyres had not performed according to their warrantee as assured in Clause 5 of the agreement, entitling the Corporation and making the appellant-Company liable to payment of compensation, whereas the company asserted that as envisaged in Clause 5, assessment was to be made only after 12 months while the Corporation started holding joint inspection of retreaded tyres only within two months. No doubt, the agreement was executed on 24.7.1991 and assessment could have been made after 12 months of installation of the plant, whereas Corporation's entire claim is based on inspection carried out within 3 to 5 months of the agreement. Be that as it may, in my considered view, there is no specific covenant in the contract that in case of inspection having been made or held prior to 12 months as stipulated in Clause 5, would disentitle the corporation to claim compensation on pro rata basis on failure of the retreaded tyres to give guaranteed kilometer age.
Be that as it may, in my considered view, there is no specific covenant in the contract that in case of inspection having been made or held prior to 12 months as stipulated in Clause 5, would disentitle the corporation to claim compensation on pro rata basis on failure of the retreaded tyres to give guaranteed kilometer age. The joint inspections could not and were not held for purposes of assessment of tyre life but were held only for segration of tyres and to see whether they were fit for retreading or whether they were scrap or whether they could be used after repair. As already held above, the agreement specifically stipulated that the performance of the tyres were to be assessed and only when an assessment had been made and it stands proved that the tyres had not performed their guaranteed kilometers then compensation was to be awarded. In other words, the performance of tyres was required to be assessed only comparatively because the warranty Clause 5 implied that the life of retreaded tyre was to be compared with the life of new tyre. Thus, there could be no assessment unless both new and retreaded tyres were used in each division in similar condition. To find out as to whether the retreaded tyres had fulfilled the guarantee or not or whichever is less, there should have necessarily been an assessment of new tyre life also. V. S. Barar stated as under : "The purpose of joint inspection was to show the tyre and cards of retreaded tyres. The performance of only retreaded tyres was to be considered and the performance of the new tyres was for reference only and hence new tyre were not placed for inspection." According to V. S. Barar, no trial of new tyres and Indag tyre is necessary as per agreement. I find that new tyres were never put up for inspection or assessment. The inspection reports as well as other documentary evidence led by both the parties do not show comparative assessment of retreaded and new tyres with a view to find out as to the guaranteed kilometer age as stipulated in Clause 5 of the agreement and as analysed by this Court in aforesaid paras of this judgment.
The inspection reports as well as other documentary evidence led by both the parties do not show comparative assessment of retreaded and new tyres with a view to find out as to the guaranteed kilometer age as stipulated in Clause 5 of the agreement and as analysed by this Court in aforesaid paras of this judgment. Thus in my considered opinion, this significant aspect bearing material to the dispute under arbitration as to the award of compensation on pro rata basis has totally been ignored not only by the arbitrator but also by the learned District Judge under the impugned Award and the decree. The Corporation seems to have not arrived at an assessment of new tyre life at all, without which the calculation of compensation on pro rata basis with a view to find out as to whether there was failure of the retreaded tyres having given lesser mileage than guaranteed i.e. 46,000 kms. of 95% of new tyres mileage whichever is less, is totally in disregard to the terms of the contract, itself and contrary to law. The arbitrator has not applied his mind to the joint inspection reports or calculation sheet on the basis of which the corporation has claimed compensation considering only performance of retreaded tyres and without making comparative assessment of performance of both retreaded and new tyres as referred to above with reference to warranty Clause 5 of the contract. Moreover the arbitrator without in fact arriving at an independent adjudication has failed to determine actual quantum of loss, if any, sustained by the Corporation rather he granted the claim as put up and demanded by the Corporation. In fact the arbitrator did not give any finding whatsoever as to how the loss has been calculated or assessed or quantified and there is absolutely no finding whatsoever nor any material as has been put as to the comparative assessment of retreaded and new tyres.
In fact the arbitrator did not give any finding whatsoever as to how the loss has been calculated or assessed or quantified and there is absolutely no finding whatsoever nor any material as has been put as to the comparative assessment of retreaded and new tyres. Without comparative assessment of performance of both retreaded and new tyres, the award of compensation on the part of the arbitrator is opposed to all rational and reasonable principles resulting in excessive award and unjust result which tends to show non application of mind to the material facts placed before the arbitrator and the arbitrator has committed a legal misconduct by not applying his mind to the matters in controversy thereby it warrants interference by this Court so as to set aside and remit the award for determination of comparative performance with reference to the terms of the contract so also the evidence or material led on record by respective parties in support of their claims or counter claims. The arbitrator and the learned District Judge have failed to take into consideration another significant aspect of award of interest with reference to the terms of contract so also relevant provisions for grant of interest in arbitration proceedings as to whether the interest is liable to be granted or not. It is however made clear that the Corporation will be free to adduce additional evidence in support of its claim for showing comparative assessment and then the company may also rebut its evidence whatsoever in counter but subject to the observations made by this Court herein above, including the aspect of award of interest. As a result of the above discussion, this civil misc. appeal is partly allowed; the impugned judgment dated 22.11.1999 passed by the District Judge Jaipur City in CMA (Arb.) No. 256/1997 confirming the Award dated 4.4.1997 of the arbitrator and passing a decree in terms thereof are hereby set aside; and consequently the Award dated 4.4.1997 stands set aside.
As a result of the above discussion, this civil misc. appeal is partly allowed; the impugned judgment dated 22.11.1999 passed by the District Judge Jaipur City in CMA (Arb.) No. 256/1997 confirming the Award dated 4.4.1997 of the arbitrator and passing a decree in terms thereof are hereby set aside; and consequently the Award dated 4.4.1997 stands set aside. However, the matter is remitted back to Rajasthan State Road Transport Corporation for fresh adjudication of the dispute under the claim in question of the respondent Corporation, by appointing an arbitrator other than who has earlier given the Award dated 4.4.1997, with the direction to get the adjudication by affording full opportunity of hearing afresh in terms of the reference as well as the contract in question so also considering all relevant documents on record and then decide the matter subject to the observations made above in this judgment by giving his award in accordance with law at the earliest possible i.e. within six months from the date of appointment and receipt of the record along with judgment of this Court. The summoned record be sent back to the lower Court. No order as to costs. Appeal partly allowed.